State of Smart Buildings and Retrofits: A Glimpse into the Future

Investment in technology and retrofitting is a response to the realization that most buildings are already constructed, and they need to adapt to modern sustainability and efficiency standards.

I recently spoke with Stefan Schmidt, Director of Smart Building Technology at WiredScore, to explore the dynamic landscape of smart buildings and retrofits.

His leadership role at WiredScore has allowed him to witness the transformation of the industry, driving innovation in smart building projects and certifications, and his varied experience and expertise make him a pivotal figure in the industry's quest for sustainable and efficient smart building solutions.

Smart buildings have emerged as a game-changer, offering energy efficiency, improved building operations, and cost-saving benefits. Despite being more expensive to construct, they end up being less expensive over time than conventional buildings. Smart buildings also provide an improved standard of living for occupants, making them a wise investment for the future.

Let’s dive deeper into the present and future of smart buildings and retrofits, based on my conversation with Stefan.

Smart Buildings and Retrofits: Supply and Demand Perspectives

To understand the current state of Smart Buildings and retrofits, you must consider both the supply and demand sides. At times, the supply side can be biased. Let us learn from Stefan's expertise how the graph looks on both sides.

Supply Side: Retrofitting for Modernization

From a supply perspective, Stefan shared his insights from certifying numerous buildings over the years. Although there is still potential for growth in the retrofit sector, adoption is rising. Occupied spaces seeking WiredScore certification have been steadily increasing, largely driven by the "flight to quality" phenomenon. To remain competitive and prevent appraisal issues, building owners are upgrading their properties. This investment in technology and retrofitting is a response to the realization that most buildings are already constructed, and they need to adapt to modern standards.

According to Stefan, the industry is gradually moving into the early adoption phase, following the classic Rogers adoption curve. While there has been improvement, there is still work to be done.

Demand Side: ESG and Regional Trends

Stefan emphasised the relevance of ESG (Environmental, Social, and Governance) factors in driving retrofit adoption in terms of global trends. ESG is more than a buzzword; it is a top-down requirement. Investors are incorporating ESG criteria into their portfolios, and real estate, in all its forms, is a significant part of this movement. While different regions may prioritise different ESG factors—for example, "E" (environmental) in the UK and US against "S" (social) in APAC, with air quality sensors deployed in workplaces—the overriding theme is the integration of ESG principles.?

The real estate landscape is shaped by a complicated combination of compliance regulations and investor pressure. In the UK, for example, the establishment of minimum energy efficiency standards emphasises the need for compliance. However, it is critical to recognise that the adoption of innovative solutions and products is frequently driven by a combination of regulatory requirements and investor expectations. Demand for such solutions is increasing in regions with robust energy-related regulations, such as the United States. The regional regulations also influence the investment decisions within the industry.

Barriers in Adoption of Technologies

When it comes to retrofit adoption, the primary barrier is the cost and return on investment (ROI). Retrofitting technology can be expensive, especially when hardware changes or control system replacements are required. The challenge is greater in buildings that lack sophisticated control systems, particularly when it comes to deploying sensors for data collection. Building owners often find it difficult to justify the expenditure, especially for properties that may not generate significant revenue or are at risk of non-compliance with regulations.

Stefan observes that the industry's sub-sectors are diverse and fragmented. This fragmentation must be bridged. While technology solutions are available, the industry needs better business models to make retrofitting more accessible. Commercial real estate, for example, is extremely diversified, with different interests and priorities for sub-sectors such as multi-family residential, multi-tenant commercial buildings, and big university campuses. Finding scalable solutions that cater to this diversity remains a significant challenge.

Impact of Investment Uncertainty

The uncertainty in the real estate market, caused by changes in space utilisation and the evolving role of offices, also leads to adoption challenges. The cost of capital has increased, while revenue certainty has declined. This uncertainty makes long-term investments in technology less appealing. The future of office spaces, the rise of remote work, and changing tenant expectations all add layers of complexity.

Diversification and Adaptation: A Broader Outlook

The smart building landscape extends far beyond any specific certification entity, including WiredScore. While the company has played a pioneering role in technology certification within the built environment, it has recently ventured into new territories beyond traditional commercial real estate certifications to align with changing dynamics. For instance, it has expanded its focus to encompass the residential sector, which has gained prominence in the UK and the US compared to other markets.?

The Residential Market: An Underserved Sector

Surprisingly, the residential sector is one of the most underserved sectors in the smart building landscape. While WiredScore's "Home" certification has made advancements, there is a visible gap in the smart technology field for residential properties.

Many developers face difficulty extracting valuable data from their residential portfolios. This lack of data hampers decision-making and optimization efforts. Access control systems, maintenance, and energy efficiency are all important in residential buildings, making them suitable for smart solutions.

Challenges in Residential Buildings

Residential buildings, unlike commercial buildings, do not have centralised planning. Each apartment generates its own data, resulting in a complex web of information. Managing service charges efficiently becomes critical in the face of raising prices, particularly in the UK.

Residents closely scrutinise service charges and demand transparency. This puts a lot of pressure on property managers to justify their expenses. That is why smart technology is needed to acquire the data. This will help them to successfully adapt maintenance contracts to the changing landscape, but this sector is relatively untapped.

Diverse Solutions Cohort

WiredScore's Accredited Solutions Programme, which was launched in November, responds to the market's need for solution identification. It has attracted a diverse cohort of technology companies, with a majority focused on software solutions. Approximately 80% of the cohort is focused on software, with the remaining 20% focused on hardware and sensor companies, as well as access control and indoor air quality (IAQ) solutions.

The solutions offered within the cohort can be divided into two broad categories: occupant experience and operational efficiency. The choice between these categories often depends on the organization's role within the real estate ecosystem. Developers looking to lease space prioritize occupant experience, while long-term operators emphasize operational efficiency.

Regional Dynamics in the Solutions Market

According to Stefan, regional dynamics significantly influence the solutions market. Different regions exhibit unique preferences and dominant solution providers. For example, Germany and France have distinct cohorts of solutions tailored to their markets, creating challenges for organizations seeking global solutions. This regional disparity underscores the need for greater consolidation in the smart building technology sector.

Balancing Innovation and Demand

The ongoing innovation in smart building technology is a double-edged sword. While it propels the industry forward, it also highlights the gap between technological advancement and real-world application. Striking a balance between innovation and demand remains a critical challenge, especially when considering the integration of AI and machine learning into smart buildings.

Data Acquisition: The Core Challenge

Stefan says the crux of the issue lies in data acquisition. Finding effective ways to acquire data from buildings and creating uniform data sets is the key to progress. Unstructured data obtained from different software applications is crucial for comprehending building performance and making informed decisions.?

A streamlined approach to technology installation is critical for asset managers overseeing multiple properties. It is essential to simplify the process of deploying hardware and software solutions. Property managers should not be burdened with complex contracts involving multiple vendors. Uniform data sets across all properties can revolutionize decision-making and efficiency, making it a win-win situation for both investors and tenants.

The Role of Hardware in the Smart Building Revolution

While significant investment is being made in smart building software, hardware solutions are equally important. The challenge lies in making hardware solutions more affordable, scalable, and user-friendly.

The smart building industry's fragmented nature, with numerous vendors and contracts, creates barriers to effective hardware adoption. Simplifying the process and ensuring that property owners gain the benefits of their investments will be critical to success.

Final Words

In conclusion, the success of retrofits ultimately relies on making data acquisition cost-effective and straightforward. This streamlined data gathering process may subsequently promote the implementation of solutions that drive the desired outcomes across the building sector.

If we collectively devise methods to simplify the installation of technology at scale, ensuring it doesn't burden asset managers overseeing 30 or 40 properties or even 5,000 units, without jeopardizing their financial stability, then we can expect retrofits to deliver results on par with premium, state-of-the-art buildings.

As we strive for sustainability and reduced emissions, the real estate industry must recognise the value of data in achieving these objectives. The future of smart buildings offers potential with collaboration, standardisation, and innovation, making our environment smarter, more efficient, and more connected.

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